filings.toolsItem 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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Item 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
INGERSOLL RAND INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited; in millions, except per share amounts)
| For the Three Month Period Ended March 31, | |||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||
| Revenues | $ | 1,670.1 | $ | 1,629.3 | |||||||||||||||||||
| Cost of sales | 923.8 | 965.1 | |||||||||||||||||||||
| Gross Profit | 746.3 | 664.2 | |||||||||||||||||||||
| Selling and administrative expenses | 336.3 | 311.1 | |||||||||||||||||||||
| Amortization of intangible assets | 91.6 | 92.4 | |||||||||||||||||||||
| Other operating expense, net | 25.2 | 20.4 | |||||||||||||||||||||
| Operating Income | 293.2 | 240.3 | |||||||||||||||||||||
| Interest expense | 36.8 | 38.9 | |||||||||||||||||||||
| Other income, net | (13.2) | (9.6) | |||||||||||||||||||||
| Income Before Income Taxes | 269.6 | 211.0 | |||||||||||||||||||||
| Provision for income taxes | 54.4 | 48.1 | |||||||||||||||||||||
| Income (loss) on equity method investments | (10.7) | 0.3 | |||||||||||||||||||||
| Net Income | 204.5 | 163.2 | |||||||||||||||||||||
| Less: Net income attributable to noncontrolling interests | 2.3 | 2.1 | |||||||||||||||||||||
| Net Income Attributable to Ingersoll Rand Inc. | $ | 202.2 | $ | 161.1 | |||||||||||||||||||
| Basic earnings per share | 0.50 | 0.40 | |||||||||||||||||||||
| Diluted earnings per share | 0.50 | 0.39 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
INGERSOLL RAND INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited; in millions)
| For the Three Month Period Ended March 31, | |||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||
| Comprehensive Income Attributable to Ingersoll Rand Inc. | |||||||||||||||||||||||
| Net income attributable to Ingersoll Rand Inc. | $ | 202.2 | $ | 161.1 | |||||||||||||||||||
| Other comprehensive income (loss), net of tax: | |||||||||||||||||||||||
| Foreign currency translation adjustments, net | (73.5) | 30.8 | |||||||||||||||||||||
| Unrecognized loss on cash flow hedges | (0.1) | (5.3) | |||||||||||||||||||||
| Pension and other postretirement prior service cost and gain (loss), net | (1.4) | (0.2) | |||||||||||||||||||||
| Total other comprehensive income (loss), net of tax | (75.0) | 25.3 | |||||||||||||||||||||
| Comprehensive income attributable to Ingersoll Rand Inc. | $ | 127.2 | $ | 186.4 | |||||||||||||||||||
| Comprehensive Income Attributable to Noncontrolling Interests | |||||||||||||||||||||||
| Net income attributable to noncontrolling interests | $ | 2.3 | $ | 2.1 | |||||||||||||||||||
| Other comprehensive income (loss), net of tax: | |||||||||||||||||||||||
| Foreign currency translation adjustments, net | (0.8) | 0.9 | |||||||||||||||||||||
| Total other comprehensive income (loss), net of tax | (0.8) | 0.9 | |||||||||||||||||||||
| Comprehensive income attributable to noncontrolling interests | 1.5 | 3.0 | |||||||||||||||||||||
| Total Comprehensive Income | $ | 128.7 | $ | 189.4 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
INGERSOLL RAND INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited; in millions, except share amounts)
| March 31, 2024 | December 31, 2023 | ||||||||||
| Assets | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 1,452.3 | $ | 1,595.5 | |||||||
| Accounts receivable, net of allowance for credit losses of $55.3 and $53.8, respectively | 1,245.2 | 1,234.2 | |||||||||
| Inventories | 1,051.8 | 1,001.1 | |||||||||
| Other current assets | 257.5 | 219.6 | |||||||||
| Total current assets | 4,006.8 | 4,050.4 | |||||||||
| Property, plant and equipment, net of accumulated depreciation of $518.5 and $500.8, respectively | 742.2 | 711.4 | |||||||||
| Goodwill | 6,609.9 | 6,609.7 | |||||||||
| Other intangible assets, net | 3,589.6 | 3,611.1 | |||||||||
| Deferred tax assets | 32.7 | 31.5 | |||||||||
| Other assets | 547.8 | 549.4 | |||||||||
| Total assets | $ | 15,529.0 | $ | 15,563.5 | |||||||
| Liabilities and Stockholders’ Equity | |||||||||||
| Current liabilities: | |||||||||||
| Short-term borrowings and current maturities of long-term debt | $ | 31.3 | $ | 30.6 | |||||||
| Accounts payable | 694.0 | 801.2 | |||||||||
| Accrued liabilities | 999.3 | 995.5 | |||||||||
| Total current liabilities | 1,724.6 | 1,827.3 | |||||||||
| Long-term debt, less current maturities | 2,687.0 | 2,693.0 | |||||||||
| Pensions and other postretirement benefits | 149.5 | 150.0 | |||||||||
| Deferred income tax liabilities | 624.2 | 612.6 | |||||||||
| Other liabilities | 424.0 | 433.9 | |||||||||
| Total liabilities | $ | 5,609.3 | $ | 5,716.8 | |||||||
| Commitments and contingencies (Note 18) | — | — | |||||||||
| Stockholders’ equity | |||||||||||
| Common stock, $0.01 par value; 1,000,000,000 shares authorized; 429,651,459 and 428,589,061 shares issued as of March 31, 2024 and December 31, 2023, respectively | 4.3 | 4.3 | |||||||||
| Capital in excess of par value | 9,569.8 | 9,550.8 | |||||||||
| Retained earnings | 1,891.3 | 1,697.2 | |||||||||
| Accumulated other comprehensive loss | (302.6) | (227.6) | |||||||||
| Treasury stock at cost; 25,926,540 and 25,241,667 shares as of March 31, 2024 and December 31, 2023, respectively | (1,307.5) | (1,240.9) | |||||||||
| Total Ingersoll Rand Inc. stockholders’ equity | $ | 9,855.3 | $ | 9,783.8 | |||||||
| Noncontrolling interests | 64.4 | 62.9 | |||||||||
| Total stockholders’ equity | $ | 9,919.7 | $ | 9,846.7 | |||||||
| Total liabilities and stockholders’ equity | $ | 15,529.0 | $ | 15,563.5 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
INGERSOLL RAND INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited; in millions)
| Three Month Period Ended March 31, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common Stock | Capital in Excess of Par Value | Retained Earnings | Accumulated Other Comprehensive Loss | Treasury Stock | Total Ingersoll Rand Inc. Stockholders’ Equity | Noncontrolling Interests | Total Equity | ||||||||||||||||||||||||||||||||||||||||||||||
| Shares Issued | Par | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at beginning of period | 428.6 | $ | 4.3 | $ | 9,550.8 | $ | 1,697.2 | $ | (227.6) | $ | (1,240.9) | $ | 9,783.8 | $ | 62.9 | $ | 9,846.7 | ||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | 202.2 | — | — | 202.2 | 2.3 | 204.5 | ||||||||||||||||||||||||||||||||||||||||||||
| Dividends declared | — | — | — | (8.1) | — | — | (8.1) | — | (8.1) | ||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for stock-based compensation plans | 1.1 | — | 10.1 | — | — | — | 10.1 | — | 10.1 | ||||||||||||||||||||||||||||||||||||||||||||
| Purchases of treasury stock | — | — | — | — | — | (72.9) | (72.9) | — | (72.9) | ||||||||||||||||||||||||||||||||||||||||||||
| Issuance of treasury stock for stock-based compensation plans | — | — | (5.2) | — | — | 6.3 | 1.1 | — | 1.1 | ||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | 14.1 | — | — | — | 14.1 | — | 14.1 | ||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss, net of tax | — | — | — | — | (75.0) | — | (75.0) | (0.8) | (75.8) | ||||||||||||||||||||||||||||||||||||||||||||
| Balance at end of period | 429.7 | $ | 4.3 | $ | 9,569.8 | $ | 1,891.3 | $ | (302.6) | $ | (1,307.5) | $ | 9,855.3 | $ | 64.4 | $ | 9,919.7 |
| Three Month Period Ended March 31, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common Stock | Capital in Excess of Par Value | Retained Earnings | Accumulated Other Comprehensive Loss | Treasury Stock | Total Ingersoll Rand Inc. Stockholders’ Equity | Noncontrolling Interests | Total Equity | ||||||||||||||||||||||||||||||||||||||||||||||
| Shares Issued | Par | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at beginning of period | 426.3 | $ | 4.3 | $ | 9,476.8 | $ | 950.9 | $ | (251.7) | $ | (984.5) | $ | 9,195.8 | $ | 61.4 | $ | 9,257.2 | ||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | 161.1 | — | — | 161.1 | 2.1 | 163.2 | ||||||||||||||||||||||||||||||||||||||||||||
| Dividends declared | — | — | — | (8.1) | — | — | (8.1) | — | (8.1) | ||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for stock-based compensation plans | 1.2 | — | 8.7 | — | — | — | 8.7 | — | 8.7 | ||||||||||||||||||||||||||||||||||||||||||||
| Purchases of treasury stock | — | — | — | — | — | (77.0) | (77.0) | — | (77.0) | ||||||||||||||||||||||||||||||||||||||||||||
| Issuance of treasury stock for stock-based compensation plans | — | — | (3.3) | — | — | 3.4 | 0.1 | — | 0.1 | ||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | 11.4 | — | — | — | 11.4 | — | 11.4 | ||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income, net of tax | — | — | — | — | 25.3 | — | 25.3 | 0.9 | 26.2 | ||||||||||||||||||||||||||||||||||||||||||||
| Balance at end of period | 427.5 | $ | 4.3 | $ | 9,493.6 | $ | 1,103.9 | $ | (226.4) | $ | (1,058.1) | $ | 9,317.3 | $ | 64.4 | $ | 9,381.7 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
INGERSOLL RAND INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; in millions)
| For the Three Month Period Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Cash Flows From Operating Activities: | |||||||||||
| Net income | $ | 204.5 | $ | 163.2 | |||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Amortization of intangible assets | 91.6 | 92.4 | |||||||||
| Depreciation | 25.6 | 21.6 | |||||||||
| Non-cash restructuring charges | — | 0.9 | |||||||||
| Stock-based compensation expense | 14.1 | 12.1 | |||||||||
| Loss (income) on equity method investments | 10.7 | (0.3) | |||||||||
| Foreign currency transaction losses (gains), net | (0.7) | 1.0 | |||||||||
| Non-cash adjustments to carrying value of LIFO inventories | 6.7 | 7.8 | |||||||||
| Other non-cash adjustments | 1.4 | 2.9 | |||||||||
| Changes in assets and liabilities: | |||||||||||
| Receivables | (11.5) | (83.7) | |||||||||
| Inventories | (58.2) | (45.3) | |||||||||
| Accounts payable | (101.5) | (70.6) | |||||||||
| Accrued liabilities | (1.8) | 56.5 | |||||||||
| Other assets and liabilities, net | (19.3) | 11.8 | |||||||||
| Net cash provided by operating activities | 161.6 | 170.3 | |||||||||
| Cash Flows Used In Investing Activities: | |||||||||||
| Capital expenditures | (62.3) | (22.4) | |||||||||
| Net cash paid in acquisitions | (143.3) | (566.4) | |||||||||
| Disposals of property, plant and equipment | — | 7.3 | |||||||||
| Net cash used in investing activities | (205.6) | (581.5) | |||||||||
| Cash Flows Used In Financing Activities: | |||||||||||
| Principal payments on long-term debt | (7.1) | (11.0) | |||||||||
| Purchases of treasury stock | (72.9) | (77.0) | |||||||||
| Cash dividends on common shares | (8.1) | (8.1) | |||||||||
| Proceeds from stock option exercises | 11.2 | 9.2 | |||||||||
| Payments of deferred and contingent acquisition consideration | (2.2) | (1.9) | |||||||||
| Other financing | (0.5) | (0.5) | |||||||||
| Net cash used in financing activities | (79.6) | (89.3) | |||||||||
| Effect of exchange rate changes on cash and cash equivalents | (19.6) | 6.8 | |||||||||
| Net decrease in cash and cash equivalents | (143.2) | (493.7) | |||||||||
| Cash and cash equivalents, beginning of period | 1,595.5 | 1,613.0 | |||||||||
| Cash and cash equivalents, end of period | $ | 1,452.3 | $ | 1,119.3 | |||||||
| Supplemental Cash Flow Information | |||||||||||
| Cash paid for income taxes, net of refunds | $ | 43.5 | $ | 19.1 | |||||||
| Cash paid for interest, net of interest rate derivative settlements | 58.2 | 36.1 | |||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
INGERSOLL RAND INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; in millions, except share and per share amounts)
Note 1. Basis of Presentation and Recent Accounting Pronouncements
Basis of Presentation
Ingersoll Rand Inc. is a diversified, global provider of mission-critical flow creation products and industrial solutions. The accompanying condensed consolidated financial statements include the accounts of Ingersoll Rand Inc. and its majority-owned subsidiaries (collectively referred to herein as “Ingersoll Rand” or the “Company”).
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial reporting, the instructions for Form 10-Q and Article 10 of the U.S. Securities and Exchange Commission (“SEC”) Regulation S-X. In the Company’s opinion, the condensed consolidated financial statements reflect all adjustments of a normal recurring nature necessary for a fair statement of the results for the interim periods presented. The condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2023 (“2023 Annual Report”).
The results of operations for the three month period ended March 31, 2024 are not necessarily indicative of future results.
Recently Issued Accounting Pronouncements
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which improves reportable segment disclosure requirements, primarily through enhanced disclosures about significant segments expenses. The amendments in this update are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The amendments in this update should be applied retrospectively to all prior periods presented in the financial statements. Upon transition, the segment expense categories and amounts disclosed in the prior periods should be based on the significant segment expense categories identified and disclosed in the period of adoption. The adoption will modify our disclosures but is not expected to have a material effect on our consolidated financial statements.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which addresses investor requests for more transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid information. The amendments in this update are effective for annual periods beginning after December 15, 2024. Early adoption is permitted for annual statements that have not yet been issued or made available for issuance. The amendments in this update should be applied on a prospective basis. Retrospective application is permitted. The adoption will modify our disclosures but is not expected to have a material effect on our consolidated financial statements.
Note 2. Acquisitions
Acquisitions in 2024
On February 1, 2024, the Company completed the acquisition of Friulair S.r.l. (“Friulair”) for initial cash consideration of $142.2 million and contingent consideration of up to approximately $11.0 million. The business is a manufacturer of dryers, filters, aftercoolers, and accessories for the treatment of compressed air and its chiller product line. The acquisition is intended increase the scale of the Company’s air dryer business and will add new chiller production capabilities. Friulair has been reported within the Industrial Technologies and Services segment. The goodwill arising from the acquisition is primarily attributable to revenue and cost synergies, anticipated growth of new and existing customers, and the assembled workforce. Substantially all of this goodwill is not expected to be deductible for tax purposes.
Other acquisitions completed during the three months ended March 31, 2024 include a manufacturer of vacuum pumps and accessories, substantially all of which have been reported within the Industrial Technologies and Services segment. The aggregate consideration for this acquisition was $1.4 million.
The following table summarizes the allocation of consideration for all businesses acquired in the first quarter of 2024 to the fair values of identifiable assets acquired and liabilities assumed at the acquisition dates. Initial accounting for acquisitions completed
in the first quarter, including Friulair, is preliminary, and amounts assigned to acquired assets and liabilities assumed are subject to change as information necessary to complete the analysis is obtained.
| Friulair | All Others | Total | |||||||||||||||||||||
| Accounts receivable | $ | 14.9 | $ | — | $ | 14.9 | |||||||||||||||||
| Inventories | 13.2 | 0.3 | 13.5 | ||||||||||||||||||||
| Other current assets | 0.5 | — | 0.5 | ||||||||||||||||||||
| Property, plant and equipment | 7.7 | 0.1 | 7.8 | ||||||||||||||||||||
| Goodwill | 44.9 | 1.0 | 45.9 | ||||||||||||||||||||
| Other intangible assets | 84.5 | — | 84.5 | ||||||||||||||||||||
| Other assets | 0.3 | — | 0.3 | ||||||||||||||||||||
| Total current liabilities | (14.5) | — | (14.5) | ||||||||||||||||||||
| Other noncurrent liabilities | (2.8) | — | (2.8) | ||||||||||||||||||||
| Total consideration | $ | 148.7 | $ | 1.4 | $ | 150.1 |
The aggregate revenue and operating income included in the condensed consolidated financial statements for these acquisitions subsequent to the dates of acquisition was $11.3 million and $0.5 million for the three month period ended March 31, 2024, respectively. The operating income of these acquired businesses includes the effects of acquisition-related accounting adjustments such as amortization of intangible assets.
Transaction with ILC Dover
On March 25, 2024, the Company entered into an agreement to acquire ILC Dover from New Mountain Capital, LLC for an upfront all-cash purchase price of approximately $2.325 billion and contingent consideration of up to $75.0 million. ILC Dover’s offerings include solutions for biopharmaceutical, pharmaceutical, and medical device markets as well as products for the space industry and will be reported in the Precision and Science Technologies segment. This transaction is expected to close in the second quarter of 2024, subject to customary regulatory approvals and closing conditions.
Acquisitions in 2023
On January 3, 2023, the Company completed the acquisition of SPX FLOW’s Air Treatment business (“Air Treatment”) for cash consideration of $519.0 million. The business is a manufacturer of desiccant and refrigerated dryers, filtration systems and purifiers for dehydration in compressed air. The acquisition is intended to expand the Company’s offerings of compressor system components through globally recognized brands. The Air Treatment business has been reported within the Industrial Technologies and Services segment. The goodwill arising from the acquisition is primarily attributable to revenue and cost synergies, anticipated growth of new and existing customers, and the assembled workforce. Substantially all of this goodwill is not expected to be deductible for tax purposes.
On February 1, 2023, the Company acquired Paragon Tank Truck Equipment (“Paragon”), a provider of solutions used for loading and unloading dry bulk and liquid tanks on and off of trucks, for cash consideration of $42.2 million. Paragon has been reported within the Industrial Technologies and Services segment.
On April 1, 2023, the Company acquired EcoPlant Technological Innovation Ltd. (“EcoPlant”), for initial cash consideration of $29.5 million and contingent consideration of up to $17.0 million. EcoPlant is a provider of a software-as-a-service platform that dynamically controls compressed air systems to optimize performance and resource consumption. EcoPlant has been reported within the Industrial Technologies and Services segment.
On August 18, 2023, the Company completed the acquisition of Howden Roots LLC (“Roots”), for cash consideration of $290.0 million. Roots is a leading manufacturer of engineered rotary and centrifugal blowers with an iconic brand developed over more than 160 years. The acquisition is intended to expand the Company’s blower product portfolio and benefit from Roots’ robust technical capabilities and exposure to growing sustainability-related applications. Roots has been reported within the Industrial Technologies and Services segment. The goodwill arising from the acquisition is primarily attributable to revenue and cost synergies, anticipated growth of new and existing customers, and the assembled workforce. This goodwill is expected to be deductible for tax purposes.
The Company acquired 10 additional businesses in 2023 for aggregate consideration of $83.7 million. These primarily consist of manufacturers and distributors of existing and adjacent offerings in the Industrial Technologies and Services segment.
The following table summarizes the allocation of consideration for all businesses acquired in 2023 to the fair values of identifiable assets acquired and liabilities assumed at the acquisition dates. Initial accounting for Air Treatment is complete. Initial accounting for all other acquisitions completed in 2023, including Roots, is substantially complete and any further measurement period adjustments are not expected to be material.
| Air Treatment | Roots | All Others | Total | ||||||||||||||||||||
| Accounts receivable | $ | 26.1 | $ | 14.5 | $ | 11.7 | $ | 52.3 | |||||||||||||||
| Inventories | 43.9 | 34.2 | 21.0 | 99.1 | |||||||||||||||||||
| Other current assets | 2.1 | 2.9 | 6.2 | 11.2 | |||||||||||||||||||
| Property, plant and equipment | 18.4 | 42.0 | 5.0 | 65.4 | |||||||||||||||||||
| Goodwill | 279.9 | 104.0 | 125.7 | 509.6 | |||||||||||||||||||
| Other intangible assets | 238.6 | 116.9 | 25.4 | 380.9 | |||||||||||||||||||
| Other assets | 7.6 | 4.5 | 0.4 | 12.5 | |||||||||||||||||||
| Total current liabilities | (35.9) | (26.9) | (19.2) | (82.0) | |||||||||||||||||||
| Deferred tax liabilities | (54.8) | — | (3.7) | (58.5) | |||||||||||||||||||
| Other noncurrent liabilities | (6.9) | (2.1) | (4.3) | (13.3) | |||||||||||||||||||
| Total consideration | $ | 519.0 | $ | 290.0 | $ | 168.2 | $ | 977.2 |
The revenues included in the condensed consolidated financial statements for these acquisitions subsequent to their date of acquisition was $95.6 million and $48.4 million for the three month periods ended March 31, 2024 and 2023, respectively. The operating income included in the condensed consolidated financial statements for these acquisitions subsequent to their date of acquisition was $11.5 million and $3.2 million for the three month periods ended March 31, 2024 and 2023, respectively. The operating income of these acquired businesses include the effects of acquisition-related accounting adjustments such as amortization of intangible assets and fair value adjustments to acquired inventory.
Note 3. Restructuring
2024 and 2023 Actions
The Company continues to undertake restructuring actions to optimize our cost structure. Charges incurred from actions taken in 2024 and 2023 include workforce restructuring, facility consolidation and other exit and disposal costs.
For the three month periods ended March 31, 2024 and 2023, “Restructuring charges, net” were recognized within “Other operating expense, net” in the Condensed Consolidated Statement of Operations and consisted of the following.
| For the Three Month Period Ended March 31, | |||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||
| Industrial Technologies and Services | $ | 5.1 | $ | 3.1 | |||||||||||||||||||
| Precision and Science Technologies | 4.4 | (0.4) | |||||||||||||||||||||
| Corporate | 0.2 | 0.2 | |||||||||||||||||||||
| Restructuring charges, net | $ | 9.7 | $ | 2.9 |
The following table summarizes the activity associated with the Company’s restructuring programs for the three month periods ended March 31, 2024 and 2023.
| For the Three Month Period Ended March 31, | |||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||
| Balance at beginning of period | $ | 15.5 | $ | 14.9 | |||||||||||||||||||
| Charged to expense - termination benefits | 9.3 | 0.9 | |||||||||||||||||||||
| Charged to expense - other (1) | 0.4 | 1.1 | |||||||||||||||||||||
| Payments | (4.3) | (3.6) | |||||||||||||||||||||
| Currency translation adjustment and other | (0.3) | 0.1 | |||||||||||||||||||||
| Balance at end of period | $ | 20.6 | $ | 13.4 |
(1)Excludes $0.9 million of non-cash charges that impacted restructuring expense but not the restructuring liabilities during the three month period ended March 31, 2023.
Note 4. Allowance for Credit Losses
The allowance for credit losses for the three month periods ended March 31, 2024 and 2023 consisted of the following.
| For the Three Month Period Ended March 31, | |||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||
| Balance at beginning of the period | $ | 53.8 | $ | 47.2 | |||||||||||||||||||
| Provision charged to expense | 2.5 | 4.0 | |||||||||||||||||||||
| Write-offs, net of recoveries | (0.3) | (0.4) | |||||||||||||||||||||
| Foreign currency translation and other | (0.7) | 0.2 | |||||||||||||||||||||
| Balance at end of the period | $ | 55.3 | $ | 51.0 |
Note 5. Inventories
Inventories as of March 31, 2024 and December 31, 2023 consisted of the following.
| March 31, 2024 | December 31, 2023 | ||||||||||
| Raw materials, including parts and subassemblies | $ | 657.9 | $ | 590.7 | |||||||
| Work-in-process | 137.5 | 145.1 | |||||||||
| Finished goods | 335.6 | 337.8 | |||||||||
| 1,131.0 | 1,073.6 | ||||||||||
| LIFO reserve | (79.2) | (72.5) | |||||||||
| Inventories | $ | 1,051.8 | $ | 1,001.1 |
Note 6. Goodwill and Other Intangible Assets
Goodwill
The changes in the carrying amount of goodwill attributable to each reportable segment for the three month period ended March 31, 2024 is presented in the table below.
| Industrial Technologies and Services | Precision and Science Technologies | Total | |||||||||||||||||||||||||||
| Balance at beginning of period | $ | 4,753.5 | $ | 1,856.2 | $ | 6,609.7 | |||||||||||||||||||||||
| Acquisitions | 45.9 | — | 45.9 | ||||||||||||||||||||||||||
| Foreign currency translation and other(1) | (30.2) | (15.5) | (45.7) | ||||||||||||||||||||||||||
| Balance at end of period | $ | 4,769.2 | $ | 1,840.7 | $ | 6,609.9 |
(1)Includes measurement period adjustments
As of both March 31, 2024 and December 31, 2023, goodwill included accumulated impairment losses of $220.6 million within the Industrial Technologies and Services segment.
Other Intangible Assets, Net
Other intangible assets as of March 31, 2024 and December 31, 2023 consisted of the following.
| March 31, 2024 | December 31, 2023 | ||||||||||||||||||||||||||||||||||
| Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | ||||||||||||||||||||||||||||||
| Amortized intangible assets | |||||||||||||||||||||||||||||||||||
| Customer lists and relationships | $ | 3,325.5 | $ | (1,643.2) | $ | 1,682.3 | $ | 3,279.3 | $ | (1,585.4) | $ | 1,693.9 | |||||||||||||||||||||||
| Technology | 418.6 | (195.3) | 223.3 | 413.8 | (178.9) | 234.9 | |||||||||||||||||||||||||||||
| Tradenames | 56.8 | (28.9) | 27.9 | 52.2 | (27.9) | 24.3 | |||||||||||||||||||||||||||||
| Backlog | 4.4 | (2.2) | 2.2 | 3.0 | (1.3) | 1.7 | |||||||||||||||||||||||||||||
| Other | 121.2 | (106.1) | 15.1 | 117.1 | (104.1) | 13.0 | |||||||||||||||||||||||||||||
| Unamortized intangible assets | |||||||||||||||||||||||||||||||||||
| Tradenames | 1,638.8 | — | 1,638.8 | 1,643.3 | — | 1,643.3 | |||||||||||||||||||||||||||||
| Total other intangible assets | $ | 5,565.3 | $ | (1,975.7) | $ | 3,589.6 | $ | 5,508.7 | $ | (1,897.6) | $ | 3,611.1 |
Intangible Asset Impairment Considerations
As of March 31, 2024 and December 31, 2023, there were no indications that the carrying value of goodwill and other intangible assets may not be recoverable.
Note 7. Supply Chain Finance Program
The Company has agreements with financial institutions to facilitate a supply chain finance program (the “SCF Program”). Under the SCF Program, qualifying suppliers may elect to sell their receivables from the Company to the financial institution. Participating suppliers negotiate arrangements for sale of their receivables directly with the financial institution, and the terms of the Company’s payment obligations are not impacted by a supplier’s participation in the SCF Program. Once a qualifying supplier elects to participate in the SCF Program and reaches an agreement with the financial institution, the supplier elects which individual Company invoices they sell to the financial institution. However, all of the Company’s payments to participating suppliers are paid to the financial institution on the invoice due date, regardless of whether the individual invoice is sold by the supplier to the financial institution. The Company has not pledged any assets as security or provided other forms of guarantees. All outstanding amounts related to suppliers participating in the SCF Program are recorded within “Accounts payable” in our Condensed Consolidated Balance Sheets, and the associated payments are included in “Net cash provided by operating activities” within our Condensed Consolidated Statements of Cash Flows. Included in “Accounts payable” in the Condensed Consolidated Balance Sheets as of March 31, 2024 and December 31, 2023 were $24.0 million and $24.3 million of outstanding payment obligations, respectively, that were sold to the financial institution by participating suppliers.
Note 8. Accrued Liabilities
Accrued liabilities as of March 31, 2024 and December 31, 2023 consisted of the following.
| March 31, 2024 | December 31, 2023 | ||||||||||
| Salaries, wages and related fringe benefits | $ | 239.0 | $ | 262.4 | |||||||
| Contract liabilities | 345.4 | 331.2 | |||||||||
| Product warranty | 65.6 | 61.9 | |||||||||
| Operating lease liabilities | 42.5 | 41.6 | |||||||||
| Restructuring | 20.6 | 15.5 | |||||||||
| Taxes | 75.6 | 78.4 | |||||||||
| Accrued interest | 12.1 | 33.1 | |||||||||
| Other | 198.5 | 171.4 | |||||||||
| Total accrued liabilities | $ | 999.3 | $ | 995.5 |
A reconciliation of the changes in the accrued product warranty liability for the three month periods ended March 31, 2024 and 2023 are as follows.
| For the Three Month Period Ended March 31, | |||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||
| Balance at beginning of period | $ | 61.9 | $ | 46.2 | |||||||||||||||||||
| Product warranty accruals | 13.6 | 8.9 | |||||||||||||||||||||
| Acquired warranty | — | 1.4 | |||||||||||||||||||||
| Settlements | (9.3) | (3.9) | |||||||||||||||||||||
| Foreign currency translation and other | (0.6) | 1.5 | |||||||||||||||||||||
| Balance at end of period | $ | 65.6 | $ | 54.1 |
Note 9. Benefit Plans
Net Periodic Benefit Cost
The following table summarizes the components of net periodic benefit cost for the Company’s defined benefit pension plans and other postretirement benefit plans recognized for the three month periods ended March 31, 2024 and 2023.
| Pension Benefits | Other Postretirement Benefits | ||||||||||||||||||||||||||||||||||
| U.S. Plans | Non-U.S. Plans | ||||||||||||||||||||||||||||||||||
| For the Three Month Period Ended March 31, | |||||||||||||||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||||||||||||
| Service cost | $ | — | $ | — | $ | 0.7 | $ | 0.6 | $ | — | $ | — | |||||||||||||||||||||||
| Interest cost | 3.5 | 4.0 | 2.7 | 2.7 | 0.2 | 0.2 | |||||||||||||||||||||||||||||
| Expected return on plan assets | (3.3) | (3.3) | (2.8) | (2.7) | — | — | |||||||||||||||||||||||||||||
| Recognition of: | |||||||||||||||||||||||||||||||||||
| Unrecognized net actuarial loss | — | — | (0.3) | (0.4) | (0.2) | (0.1) | |||||||||||||||||||||||||||||
| $ | 0.2 | $ | 0.7 | $ | 0.3 | $ | 0.2 | $ | — | $ | 0.1 |
The components of net periodic benefit cost other than the service cost component are included in “Other income, net” in the Condensed Consolidated Statements of Operations.
Note 10. Debt
Debt as of March 31, 2024 and December 31, 2023 is summarized as follows.
| March 31, 2024 | December 31, 2023 | ||||||||||
| Short-term borrowings | $ | 1.7 | $ | 1.0 | |||||||
| Long-term debt: | |||||||||||
| Dollar Term Loan B, due 2027(1)(2) | 342.9 | 347.7 | |||||||||
| Dollar Term Loan, due 2027(1)(2) | 890.0 | 892.3 | |||||||||
| 5.400% Senior Notes, due 2028(1) | 498.3 | 498.2 | |||||||||
| 5.700% Senior Notes, due 2033(1) | 992.8 | 992.6 | |||||||||
| Finance leases and other long-term debt | 14.9 | 15.2 | |||||||||
| Unamortized debt issuance costs | (22.3) | (23.4) | |||||||||
| Total long-term debt, net, including current maturities | 2,716.6 | 2,722.6 | |||||||||
| Current maturities of long-term debt | 29.6 | 29.6 | |||||||||
| Total long-term debt, net | $ | 2,687.0 | $ | 2,693.0 |
(1)This amount is net of unamortized discounts. Total unamortized discounts were $9.5 million and $9.9 million as of March 31, 2024 and December 31, 2023, respectively.
(2)As of March 31, 2024, the applicable interest rate was approximately 7.18% and the weighted-average interest rate was 7.19% for the three month period ended March 31, 2024.
Senior Notes
On August 14, 2023, the Company completed its issuance of $1,500.0 million in aggregate principal amount of senior unsecured notes comprised of $500.0 million aggregate principal amount of 5.400% Senior Notes due August 2028 (the “2028 Notes”) and $1,000.0 million aggregate principal amount of 5.700% Senior Notes due August 2033 (the “2033 Notes” and, together with the 2028 Notes, the “Notes”). The Company used the proceeds of the offering of the Notes to repay a portion of the amounts outstanding under its Senior Secured Credit Facilities. The Notes were issued pursuant to a base indenture, each dated as of August 14, 2023, between the Company and Deutsche Bank Trust Company Americas, as trustee (the “Trustee”), as supplemented by a 2028 Supplemental Indenture No. 1 with respect to the 2028 Notes and a 2033 Notes Supplemental Indenture No. 1 with respect to the 2033 Notes, each dated as of August 14, 2023, between the Company and the Trustee (collectively, the “Indenture”). The interest payment dates for the Notes are February 14 and August 14 of each year, with interest payable in arrears.
The Notes are senior unsecured obligations of the Company and rank equally in right of payment with all of the Company’s other senior unsecured indebtedness, senior in right of payment to all of the Company’s subordinated indebtedness, and effectively junior to all of the indebtedness and other liabilities of the Company’s subsidiaries (including the obligations of the Company’s subsidiaries under the Senior Secured Credit Facilities and to all of the Company’s secured indebtedness (including the Company’s obligations under the Senior Secured Credit Facilities)) to the extent of the value of the assets securing such secured indebtedness.
Prior to (i) July 14, 2028, in the case of the 2028 Notes, and (ii) May 14, 2033, in the case of the 2033 Notes, the Company may redeem the Notes of a series at its option, in whole or in part, at any time from time to time, at a “make-whole” premium, plus accrued and unpaid interest thereon to, but not including, the redemption date. On or after (i) July 14, 2028, in the case of the 2028 Notes, and (ii) May 14, 2033, in the case of the 2033 Notes, the Company may redeem the Notes of a series at its option, in whole or in part, at any time from time to time, at a price equal to 100% of the principal amount of the Notes of such series to be redeemed, plus accrued and unpaid interest thereon to, but not including, the redemption date. If the Company experiences certain types of change of control transactions, the Company must offer to repurchase the Notes at 101% of the aggregate principal amount of the Notes repurchased (or such higher amount as the Company may determine) plus accrued and unpaid interest thereon to, but not including, the date of repurchase.
The Indenture contains covenants that limit the Company’s (and its subsidiaries’) ability to, among other things: (i) create liens on certain assets; (ii) consolidate, merge, sell or otherwise dispose of all or substantially all of its consolidated assets; and (iii) enter into sale and leaseback transactions with respect to certain assets. The Indenture also contains customary events of default and covenants for an issuer of investment grade debt securities.
Senior Secured Credit Facilities
The Senior Secured Credit Facilities provided senior secured financing consisting of (i) a senior secured term loan facility denominated in U.S. dollars (as refinanced and otherwise modified from time to time prior to February 28, 2020, the “Original Dollar Term Loan”), (ii) a senior secured term loan facility denominated in U.S. dollars (entered into at the time of the Merger, the “Dollar Term Loan B”), and (iii) a senior secured revolving credit facility (as refinanced and otherwise modified from time to time the “Revolving Credit Facility”). The Revolving Credit Facility is available to be drawn in U.S. dollars (“USD”), Euros (“EUR”), Great British Pounds (“GBP”) and other reasonably accepted foreign currencies, subject to certain sublimits for the foreign currencies. On April 21 2023, the Company entered into Amendment No. 9 to the Credit Agreement, which (a) extended the maturity date for the revolving credit commitments from June 28, 2024 to April 21, 2028, (b) increased the aggregate revolving credit commitments from $1,100.0 million to $2,000.0 million, and (c) made certain other corresponding changes and updates. Other than as modified by Amendment No. 9, the loans under the Credit Agreement continue to have the same terms and the parties to the Credit Agreement continue to have the same obligations set forth in the Credit Agreement. The amendment resulted in the write-off of unamortized debt issuance costs of $0.9 million which was recognized in “Loss on extinguishment of debt” in the Condensed Consolidated Statements of Operations. In August 2023, the Company repaid a portion of the Dollar Term Loan B which resulted in the write-off of unamortized discounts and debt issuance costs of $12.6 million, which was recognized in “Loss on extinguishment of debt” in the Condensed Consolidated Statements of Operations.
See Note 11 “Debt” to the consolidated financial statements in the Company’s 2023 Annual Report for further information on the Senior Secured Credit Facilities.
As of March 31, 2024, the aggregate amount of commitments under the Revolving Credit Facility was $2,000.0 million and the capacity under the Revolving Credit Facility to issue letters of credit was $400.0 million. As of March 31, 2024, the Company had no outstanding borrowings under the Revolving Credit Facility, no outstanding letters of credit under the Revolving Credit Facility and unused availability under the Revolving Credit Facility of $2,000.0 million.
As of March 31, 2024, we were in compliance with all covenants of our Senior Secured Credit Facilities and our Senior Notes.
Fair Value of Debt
The fair value of the Company's debt instruments at March 31, 2024 was $2.8 billion. The Company measures the fair value of its debt instruments for disclosure purposes based upon observable market prices quoted on public exchanges for similar assets. These fair value inputs are considered Level 2 within the fair value hierarchy. See Note 14, “Fair Value Measurements” for information on the fair value hierarchy.
Note 11. Stock-Based Compensation Plans
The Company has outstanding stock-based compensation awards granted under the 2013 Stock Incentive Plan (“2013 Plan”) and the 2017 Omnibus Incentive Plan (as amended by the First Amendment, dated April 27, 2021, “2017 Plan”) as described in Note 18, “Stock-Based Compensation Plans” to the consolidated financial statements in its 2023 Annual Report.
The Company’s stock-based compensation awards are generally granted in the first quarter of the year and consist of stock options, restricted stock units and performance share units. In some instances, such as death, awards may vest concurrently with or following an employee’s termination.
Stock-Based Compensation
For the three month periods ended March 31, 2024 and 2023, the Company recognized stock-based compensation expense of $14.1 million and $12.1 million, respectively. These costs are included in “Cost of sales” and “Selling and administrative expenses” in the Condensed Consolidated Statements of Operations.
As of March 31, 2024, there was $146.3 million of total unrecognized compensation expense related to outstanding stock options, restricted stock unit awards and performance stock unit awards granted to employees and non-employee directors, as well as 300,000 conditional stock options awarded during the third quarter of 2022 to our Chairman and CEO in which the service date precedes the grant date, and will be granted upon achievement of certain performance targets. These 300,000 stock options have not been included in the Stock Option Awards section below since the grant date has not occurred.
Stock Option Awards
Stock options are granted to employees with an exercise price equal to the fair value of the Company’s per share common stock on the date of grant. Stock option awards typically vest over four years or five years and expire ten years from the date of grant.
A summary of the Company’s stock option (including SARs) activity for the three month period ended March 31, 2024 is presented in the following table (underlying shares in thousands).
| Shares | Weighted-Average Exercise Price (per share) | ||||||||||
| Stock options outstanding as of December 31, 2023 | 5,282 | $ | 31.09 | ||||||||
| Granted | 518 | 90.38 | |||||||||
| Exercised or settled | (570) | 19.68 | |||||||||
| Forfeited | (19) | 53.83 | |||||||||
| Expired | (2) | 31.29 | |||||||||
| Stock options outstanding as of March 31, 2024 | 5,209 | 38.14 | |||||||||
| Vested as of March 31, 2024 | 3,699 | 26.41 |
The following assumptions were used to estimate the fair value of options granted during the three month periods ended March 31, 2024 and 2023 using the Black-Scholes option-pricing model.
| For the Three Month Period Ended March 31, | |||||||||||
| Assumptions | 2024 | 2023 | |||||||||
| Expected life of options (in years) | 6.3 - 7.5 | 6.3 - 7.5 | |||||||||
| Risk-free interest rate | 4.3% | 4.0% - 4.1% | |||||||||
| Assumed volatility | 35.1% - 35.2% | 36.6% | |||||||||
| Expected dividend rate | 0.1 | % | 0.1 | % |
Restricted Stock Unit Awards
Restricted stock units are granted to employees and non-employee directors based on the market price of the Company’s common stock on the grant date and recognized in compensation expense over the vesting period. A summary of the Company’s restricted stock unit activity for the three month period ended March 31, 2024 is presented in the following table (underlying shares in thousands).
| Shares | Weighted-Average Grant-Date Fair Value | ||||||||||
| Non-vested as of December 31, 2023 | 957 | $ | 52.18 | ||||||||
| Granted | 287 | 90.38 | |||||||||
| Vested | (384) | 47.52 | |||||||||
| Forfeited | (16) | 54.88 | |||||||||
| Non-vested as of March 31, 2024 | 844 | 67.27 |
Performance Share Unit (“PSUs”) Awards
Annually, during the first quarter, the Company grants TSR PSUs to certain officers in which the number of shares issued at the end of the performance period is determined by the Company’s total shareholder return percentile rank versus the S&P 500 index for the three year performance period. The grant date fair value of these awards is determined using a Monte Carlo simulation pricing model and compensation cost is recognized straight-line over a three year period.
During the third quarter of 2022, the Company granted Special TSR PSUs to its Chairman and CEO that will become earned (but not vested) on the first date during the five year performance period on which the sum of (i) the 60-day volume-weighted average closing price of the Company’s common stock, plus (ii) the cumulative value of any dividends paid during the five year performance period equals or exceeds $81.85. The grant date fair value of these awards is determined using a Monte Carlo simulation pricing model and compensation cost is recognized straight-line over a five year period. The share price performance goal was achieved on March 6, 2024, but the PSUs will not vest until September 1, 2027, generally subject to Mr. Reynal’s continued employment through such date. The Company also granted its Chairman and CEO Special EPS PSUs that are eligible to vest based on the level of compounded annual growth rate of the Company’s Adjusted EPS during the five year performance period. The grant date fair value of these awards is based on the market price of the Company’s common stock on the grant date and recognized as a compensation expense over a 4.3 year period.
A summary of the Company’s performance stock unit activity for the three month period ended March 31, 2024 is presented in the following table (underlying shares in thousands).
| Shares | Weighted-Average Grant-Date Fair Value | ||||||||||
| Non-vested as of December 31, 2023 | 1,380 | $ | 49.53 | ||||||||
| Granted | 87 | 132.98 | |||||||||
| Change in units based on performance | 122 | 55.84 | |||||||||
| Vested | (244) | 55.84 | |||||||||
| Non-vested as of March 31, 2024 | 1,345 | 54.37 |
The following assumptions were used to estimate the fair value of performance share units granted during the three month periods ended March 31, 2024 and 2023 using the Monte Carlo simulation pricing model.
| For the Three Month Period Ended March 31, | |||||||||||
| Assumptions | 2024 | 2023 | |||||||||
| Expected term (in years) | 2.8 | 2.9 | |||||||||
| Risk-free interest rate | 4.5% | 4.4 | % | ||||||||
| Assumed volatility | 28.9% | 31.8 | % | ||||||||
| Expected dividend rate | 0.1 | % | 0.1 | % |
Note 12. Accumulated Other Comprehensive Loss
The Company’s other comprehensive income (loss) consists of (i) unrealized foreign currency net gains and losses on the translation of the assets and liabilities of its foreign operations; (ii) realized and unrealized foreign currency gains and losses on certain hedges of net investments in foreign operations, net of income taxes; (iii) unrealized gains and losses on cash flow hedges (consisting of interest rate swap and cap contracts), net of income taxes; and (iv) pension and other postretirement prior service cost and actuarial gains or losses, net of income taxes. See Note 9 “Benefit Plans” and Note 13 “Hedging Activities and Derivative Instruments.”
The before tax income (loss) and related income tax effect are as follows.
| For the Three Month Period Ended March 31, | |||||||||||||||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||||||||||||||
| Before-Tax Amount | Tax Benefit (Expense) | Net of Tax Amount | Before-Tax Amount | Tax Benefit (Expense) | Net of Tax Amount | ||||||||||||||||||||||||||||||
| Foreign currency translation adjustments, net | $ | (67.4) | $ | (6.1) | $ | (73.5) | $ | 46.2 | $ | (15.4) | $ | 30.8 | |||||||||||||||||||||||
| Unrecognized losses on cash flow hedges | (0.1) | — | (0.1) | (7.1) | 1.8 | (5.3) | |||||||||||||||||||||||||||||
| Pension and other postretirement benefit prior service cost and gain or loss, net | (1.9) | 0.5 | (1.4) | (0.2) | — | (0.2) | |||||||||||||||||||||||||||||
| Other comprehensive income (loss) | $ | (69.4) | $ | (5.6) | $ | (75.0) | $ | 38.9 | $ | (13.6) | $ | 25.3 |
The tables above include only the other comprehensive income (loss), net of tax, attributable to Ingersoll Rand Inc. Other comprehensive income (loss), net, attributable to noncontrolling interest holders was $(0.8) million and $0.9 million for the three month periods ended March 31, 2024 and 2023, respectively, and related entirely to foreign currency translation adjustments.
Changes in accumulated other comprehensive loss by component for the three month periods ended March 31, 2024 and 2023 are presented in the following table net of tax.
| Foreign Currency Translation Adjustments, Net | Cash Flow Hedges | Pension and Other Postretirement Benefit Plans | Total | ||||||||||||||||||||
| Balance as of December 31, 2023 | $ | (248.0) | $ | 12.2 | $ | 8.2 | $ | (227.6) | |||||||||||||||
| Other comprehensive income (loss) before reclassifications | (70.4) | 3.4 | (1.0) | (68.0) | |||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive loss | (3.1) | (3.5) | (0.4) | (7.0) | |||||||||||||||||||
| Other comprehensive loss | (73.5) | (0.1) | (1.4) | (75.0) | |||||||||||||||||||
| Balance as of March 31, 2024 | $ | (321.5) | $ | 12.1 | $ | 6.8 | $ | (302.6) |
| Foreign Currency Translation Adjustments, Net | Cash Flow Hedges | Pension and Other Postretirement Benefit Plans | Total | ||||||||||||||||||||
| Balance as of December 31, 2022 | $ | (282.8) | $ | 16.0 | $ | 15.1 | $ | (251.7) | |||||||||||||||
| Other comprehensive income (loss) before reclassifications | 34.8 | (3.8) | 0.2 | 31.2 | |||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive loss | (4.0) | (1.5) | (0.4) | (5.9) | |||||||||||||||||||
| Other comprehensive income (loss) | 30.8 | (5.3) | (0.2) | 25.3 | |||||||||||||||||||
| Balance as of March 31, 2023 | $ | (252.0) | $ | 10.7 | $ | 14.9 | $ | (226.4) |
Reclassifications out of accumulated other comprehensive loss for the three month periods ended March 31, 2024 and 2023 are presented in the following table.
| Amount Reclassified from Accumulated Other Comprehensive Loss | ||||||||||||||||||||
| Details about Accumulated Other Comprehensive Loss Components | For the Three Month Period Ended March 31, | Affected Line(s) in the Statement Where Net Income is Presented | ||||||||||||||||||
| 2024 | 2023 | |||||||||||||||||||
| Cash flow hedges (interest rate swaps and caps) | $ | (4.7) | $ | (2.0) | Interest expense | |||||||||||||||
| Provision for income taxes | 1.2 | 0.5 | Provision for income taxes | |||||||||||||||||
| Cash flow hedges (interest rate swaps and caps), net of tax | $ | (3.5) | $ | (1.5) | ||||||||||||||||
| Net investment hedges | $ | (4.2) | $ | (5.4) | Interest expense | |||||||||||||||
| Provision for income taxes | 1.1 | 1.4 | Provision for income taxes | |||||||||||||||||
| Net investment hedges, net of tax | $ | (3.1) | $ | (4.0) | ||||||||||||||||
| Amortization of defined benefit pension and other postretirement benefit items(1) | $ | (0.5) | $ | (0.5) | Cost of sales and Selling and administrative expenses | |||||||||||||||
| Provision for income taxes | 0.1 | 0.1 | Provision for income taxes | |||||||||||||||||
| Amortization of defined benefit pension and other postretirement benefit items, net of tax | $ | (0.4) | $ | (0.4) | ||||||||||||||||
| Total reclassifications for the period, net of tax | $ | (7.0) | $ | (5.9) |
(1)These components are included in the computation of net periodic benefit cost. See Note 9 “Benefit Plans” for additional details.
Note 13. Hedging Activities and Derivative Instruments
Hedging Activities
The Company is exposed to certain market risks during the normal course of its business arising from adverse changes in interest rates and foreign currency exchange rates. The Company selectively uses derivative financial instruments (“derivatives”), including cross-currency interest rate swap and foreign currency forward contracts and interest rate swap and cap contracts, to manage the risks from fluctuations in foreign currency exchange rates and interest rates, respectively. The Company does not purchase or hold derivatives for trading or speculative purposes.
The Company’s exposure to interest rate risk results primarily from its variable-rate borrowings. The Company manages its debt centrally, considering tax consequences and its overall financing strategies. The Company manages its exposure to interest rate risk by using interest rate derivatives as cash flow hedges of variable rate debt in order to adjust the relative fixed and variable proportions.
A substantial portion of the Company’s operations is conducted by its subsidiaries outside of the United States in currencies other than the USD. Almost all of the Company’s non-U.S. subsidiaries conduct their business primarily in their local currencies, which are also their functional currencies. The USD, the EUR, GBP, Chinese Renminbi and Indian rupee are the principal currencies in which the Company and its subsidiaries enter into transactions. The Company is exposed to the impacts of changes in foreign
currency exchange rates on the translation of its non-U.S. subsidiaries’ assets, liabilities and earnings into USD. The Company manages this exposure by having certain U.S. subsidiaries borrow in currencies other than the USD or utilizing cross-currency interest rate swaps as net investment hedges.
The Company and its subsidiaries are also subject to the risk that arises when they, from time to time, enter into transactions in currencies other than their functional currency. To mitigate this risk, the Company and its subsidiaries typically settle intercompany trading balances at least quarterly. The Company also selectively uses forward currency contracts to manage this risk. These contracts for the sale or purchase of European and other currencies generally mature within one year.
Derivative Instruments
The following table summarizes the notional amounts, fair values and classification of the Company’s outstanding derivatives by risk category and instrument type within the Condensed Consolidated Balance Sheets as of March 31, 2024 and December 31, 2023.
| March 31, 2024 | |||||||||||||||||||||||||||||||||||
| Derivative Classification | Notional Amount**(1)** | Fair Value**(1)** Other Current Assets | Fair Value**(1)** Other Assets | Fair Value**(1)** Accrued Liabilities | Fair Value**(1)** Other Liabilities | ||||||||||||||||||||||||||||||
| Derivatives Designated as Hedging Instruments | |||||||||||||||||||||||||||||||||||
| Interest rate swap contracts | Cash flow | $ | 528.5 | $ | 9.5 | $ | 1.4 | $ | — | $ | — | ||||||||||||||||||||||||
| Cross-currency interest rate swap contracts | Net investment | 1,054.2 | 16.7 | — | — | 39.7 | |||||||||||||||||||||||||||||
| December 31, 2023 | |||||||||||||||||||||||||||||||||||
| Derivative Classification | Notional Amount**(1)** | Fair Value**(1)** Other Current Assets | Fair Value**(1)** Other Assets | Fair Value**(1)** Accrued Liabilities | Fair Value**(1)** Other Liabilities | ||||||||||||||||||||||||||||||
| Derivatives Designated as Hedging Instruments | |||||||||||||||||||||||||||||||||||
| Interest rate swap contracts | Cash Flow | $ | 528.5 | $ | 8.2 | $ | 1.2 | $ | — | $ | — | ||||||||||||||||||||||||
| Cross-currency interest rate swap contracts | Net investment | 1,054.2 | 15.7 | — | — | 63.1 | |||||||||||||||||||||||||||||
(1)Notional amounts represent the gross contract amounts of the outstanding derivatives excluding the total notional amount of positions that have been effectively closed through offsetting positions. The net gains and net losses associated with positions that have been effectively closed through offsetting positions but not yet settled are included in the asset and liability derivatives fair value columns, respectively.
All cash flows related to derivatives for the periods presented are classified as operating cash flows in the Condensed Consolidated Statements of Cash Flows.
There were no off-balance sheet derivative instruments as of March 31, 2024 or December 31, 2023.
Interest Rate Swap and Cap Contracts Designated as Cash Flow Hedges
As of March 31, 2024, the Company was the fixed rate payor on two interest rate swap contracts that effectively fix the SOFR-based index used to determine the interest rates charged on a total of $528.5 million of the Company’s SOFR-based variable rate borrowings. These contracts carry a fixed rate of 3.2% and expire in June 2025. These swap agreements qualify as hedging instruments and have been designated as cash flow hedges of forecasted SOFR-based interest payments. Based on SOFR-based swap yield curves as of March 31, 2024, the Company expects to reclassify gains of $9.6 million out of accumulated other comprehensive income (“AOCI”) into earnings during the next 12 months.
The Company was previously a party to interest rate cap contracts that effectively limited the SOFR-based interest rates charged on a portion of the Company’s variable rate borrowings to 4.0%. The Company and its counterparties terminated these contracts in August 2023. Prior to their termination, these cap contracts qualified as hedging instruments and were designated as cash flow hedges of forecasted interest payments. These forecasted interest payments are still expected to occur as specified in the Company’s hedge designations; therefore, the unrecognized gain at the time of termination will be reclassified into earnings over the remaining period of original term of the contracts, ending in June 2025. The unrecognized gain remaining in AOCI as of March 31, 2024 was $4.8 million, of which $4.2 million is expected to be reclassified into earnings during the next 12 months.
Gains (losses) on derivatives designated as cash flow hedges included in the Condensed Consolidated Statements of Comprehensive Income (Loss) for the three month periods ended March 31, 2024 and 2023 are as presented in the table below.
| For the Three Month Period Ended March 31, | |||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||
| Gain (loss) recognized in OCI on derivatives | $ | 4.6 | $ | (5.1) | |||||||||||||||||||
| Gain reclassified from AOCI into income (effective portion)(1) | 4.7 | 2.0 |
(1)Gains on derivatives reclassified from AOCI into income were included within “Interest expense” in the Condensed Consolidated Statements of Operations.
Cross-Currency Interest Rate Swap Contracts Designated as Net Investment Hedges
As of March 31, 2024, the Company was the fixed rate payor on two cross-currency interest rate swap contracts that replace a fixed rate of 3.2% on a total of $528.5 million with a fixed rate of 1.6% on a total of €500.0 million. These contracts expire in June 2025. These contracts have been designated as net investment hedges of our Euro denominated subsidiaries and require an exchange of the notional amounts at maturity.
As of March 31, 2024, the Company entered into three cross-currency interest rate swap contracts where we receive SOFR on a total of $525.7 million and pay EURIBOR on a total of €500.0 million. These contracts expire in June 2025. These contracts have been designated as net investment hedges of our Euro denominated subsidiaries and require an exchange of the notional amounts at maturity.
Gains (losses) on derivatives designated as net investment hedges included in the Condensed Consolidated Statements of Comprehensive Income (Loss) for the three month periods ended March 31, 2024 and 2023 are as presented in the table below.
| For the Three Month Period Ended March 31, | |||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||
| Gain (loss) recognized in OCI on derivatives | $ | 28.6 | $ | (5.5) | |||||||||||||||||||
| Gain reclassified from AOCI into income (effective portion)(1) | 4.2 | 5.4 |
(1)Gains on derivatives reclassified from AOCI into income were included within “Interest expense” in the Condensed Consolidated Statements of Operations.
Foreign Currency Forwards Not Designated as Hedging Instruments
The Company had no foreign currency forward contracts outstanding as of March 31, 2024. These contracts are sometimes used to hedge the change in fair value of recognized foreign currency denominated assets or liabilities caused by changes in currency exchange rates. The changes in the fair value of these contracts generally offset the changes in the fair value of a corresponding amount of the hedged items, both of which are included within “Other operating expense, net” in the Condensed Consolidated Statements of Operations. The Company’s foreign currency forward contracts are subject to master netting arrangements or agreements between the Company and each counterparty for the net settlement of all contracts through a single payment in a single currency in the event of default on or termination of any one contract with that certain counterparty. It is the Company’s practice to recognize the gross amounts in the Condensed Consolidated Balance Sheets.
The Company’s gains on derivative instruments not designated as accounting hedges and total net foreign currency gains (losses) for the three month periods ended March 31, 2024 and 2023 were as follows.
| For the Three Month Period Ended March 31, | |||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||
| Foreign currency forward contracts gains | $ | — | $ | 0.2 | |||||||||||||||||||
| Total foreign currency transaction gains (losses), net | 0.7 | (1.0) |
Note 14. Fair Value Measurements
A financial instrument is defined as cash or cash equivalents, evidence of an ownership interest in an entity, or a contract that creates a contractual obligation or right to deliver or receive cash or another financial instrument from another party. The
Company’s financial instruments consist primarily of cash and cash equivalents, trade accounts receivables, trade accounts payables, deferred compensation assets and obligations, acquisition related contingent consideration obligations, derivatives and debt instruments. The carrying values of cash and cash equivalents, trade accounts receivables, trade accounts payables, and variable rate debt instruments are a reasonable estimate of their respective fair values.
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or more advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value hierarchy is based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value as follows.
Level 1 Quoted prices (unadjusted) in active markets for identical assets or liabilities as of the reporting date.
Level 2 Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities as of the reporting date.
Level 3 Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
The following tables summarize the Company’s financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2024 and December 31, 2023.
| March 31, 2024 | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| Financial Assets | |||||||||||||||||||||||
| Trading securities held in deferred compensation plan(1) | $ | 18.4 | $ | — | $ | — | $ | 18.4 | |||||||||||||||
| Interest rate swaps(2) | — | 10.9 | — | 10.9 | |||||||||||||||||||
| Cross-currency interest rate swaps(3) | — | 16.7 | — | 16.7 | |||||||||||||||||||
| Total | $ | 18.4 | $ | 27.6 | $ | — | $ | 46.0 | |||||||||||||||
| Financial Liabilities | |||||||||||||||||||||||
| Deferred compensation plans(1) | $ | 25.7 | $ | — | $ | — | $ | 25.7 | |||||||||||||||
| Cross-currency interest rate swaps(3) | — | 39.7 | — | 39.7 | |||||||||||||||||||
| Contingent consideration(4) | — | — | 48.4 | 48.4 | |||||||||||||||||||
| Total | $ | 25.7 | $ | 39.7 | $ | 48.4 | $ | 113.8 |
| December 31, 2023 | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| Financial Assets | |||||||||||||||||||||||
| Trading securities held in deferred compensation plan(1) | $ | 16.8 | $ | — | $ | — | $ | 16.8 | |||||||||||||||
| Interest rate swaps(2) | — | 9.4 | — | 9.4 | |||||||||||||||||||
| Cross-currency interest rate swaps(3) | — | 15.7 | — | 15.7 | |||||||||||||||||||
| Total | $ | 16.8 | $ | 25.1 | $ | — | $ | 41.9 | |||||||||||||||
| Financial Liabilities | |||||||||||||||||||||||
| Deferred compensation plan(1) | $ | 24.7 | $ | — | $ | — | $ | 24.7 | |||||||||||||||
| Cross-currency interest rate swaps(3) | — | 63.1 | — | 63.1 | |||||||||||||||||||
| Contingent consideration(4) | — | — | 42.2 | 42.2 | |||||||||||||||||||
| Total | $ | 24.7 | $ | 63.1 | $ | 42.2 | $ | 130.0 |
(1)Based on the quoted price of publicly traded mutual funds and other equity securities which are classified as trading securities and accounted for using the mark-to-market method.
(2)Measured as the present value of all expected future cash flows based on the SOFR-based swap yield curves as of March 31, 2024. The present value calculation uses discount rates that have been adjusted to reflect the credit quality of the Company and its counterparties.
(3)Measured as the present value of all expected future cash flows on each leg of the contracts. The model utilizes inputs of observable market data including interest yield curves and foreign currency exchange rates. The present value calculation uses cross-currency basis-adjusted discount factors that have been adjusted to reflect the credit quality of the Company and its counterparties.
(4)Measured as the present value of expected consideration payable for completed acquisitions, generally derived using probability-weighted analysis of achieving projected revenue or EBITDA targets.
Contingent Consideration
Certain of the Company’s acquisitions may result in payments of consideration in future periods that are contingent upon the achievement of certain targets, generally measures of revenue and EBITDA. As part of the initial accounting for the acquisition, a liability is recorded for the estimated fair value of the contingent consideration on the acquisition date. The fair value of the contingent consideration is re-measured at each reporting period, and the change in fair value is recognized within “Other operating expense, net” in the Condensed Consolidated Statements of Operations. This fair value measurement of contingent consideration is categorized within Level 3 of the fair value hierarchy, as the measurement amount is based primarily on significant inputs that are not observable in the market.
The following table provides a reconciliation of the activity for contingent consideration for the three month periods ended March 31, 2024 and 2023.
| For the Three Month Period Ended March 31, | |||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||
| Balance at beginning of the period | $ | 42.2 | $ | 43.9 | |||||||||||||||||||
| Acquisitions | 6.5 | — | |||||||||||||||||||||
| Changes in fair value | 0.2 | 4.3 | |||||||||||||||||||||
| Foreign currency translation | (0.5) | 0.2 | |||||||||||||||||||||
| Balance at end of the period | $ | 48.4 | $ | 48.4 |
As of March 31, 2024, the contingent consideration included in “Accrued liabilities” and “Other liabilities” on the Condensed Consolidated Balance Sheets were $10.3 million and $38.1 million, respectively.
Note 15. Revenue from Contracts with Customers
Overview
The Company recognizes revenue when the Company has satisfied its obligation and control is transferred to the customer. The amount of revenue recognized includes adjustments for any variable consideration, such as rebates, sales discounts, liquidated damages, etc., which are included in the transaction price, and allocated to each performance obligation. The variable consideration is estimated throughout the course of the contract using the Company’s best estimates.
The majority of the Company’s revenues are derived from short duration contracts and revenue is recognized at a single point in time when control is transferred to the customer, generally at shipment or when delivery has occurred or services have been rendered.
The Company has certain long duration engineered to order (“ETO”) contracts that require highly engineered solutions designed to customer specific applications. For contracts where the contractual deliverables have no alternative use and the contract termination clauses provide for the recovery of cost plus a reasonable margin, revenue is recognized over time based on the Company’s progress in satisfying the contractual performance obligations, generally measured as the ratio of actual costs incurred to date to the estimated total costs to complete the contract. For contracts with termination provisions that do not provide for recovery of cost and a reasonable margin, revenue is recognized at a point in time, generally at shipment or delivery to the customer. Identification of performance obligations, determination of alternative use, assessment of contractual language regarding termination provisions, and estimation of total project costs are all significant judgments required in the application of ASC 606.
Contractual specifications and requirements may be modified. The Company considers contract modifications to exist when the modification either creates new or changes the existing enforceable rights and obligations. In the event a contract modification is for goods or services that are not distinct in the contract, and therefore, form part of a single performance obligation that is partially satisfied as of the modification date, the effect of the contract modification on the transaction price and the Company’s measure of progress for the performance obligation to which it relates, is recognized on a cumulative catch-up basis.
Taxes assessed by a government authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by the Company from a customer, are excluded from revenue. Sales commissions are generally due at either collection of payment from customers or recognition of revenue. Applying the practical expedient from ASC 340-40-25-4, the Company recognizes the incremental costs of obtaining contracts as an expense when incurred if the amortization period of the assets that the Company otherwise would have recognized is one year or less. These costs are included in “Selling and administrative expenses” in the Condensed Consolidated Statements of Operations.
Disaggregation of Revenue
The following tables provide disaggregated revenue by reportable segment for the three month periods ended March 31, 2024 and 2023.
| Industrial Technologies and Services | Precision and Science Technologies | Total | |||||||||||||||||||||||||||||||||||||||||||||
| Three Month Period Ended March 31, | |||||||||||||||||||||||||||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||||||||||||||||||||||||
| Primary Geographic Markets | |||||||||||||||||||||||||||||||||||||||||||||||
| United States | $ | 597.1 | $ | 551.2 | $ | 137.1 | $ | 144.2 | $ | 734.2 | $ | 695.4 | |||||||||||||||||||||||||||||||||||
| Other Americas | 112.7 | 90.9 | 8.1 | 7.3 | 120.8 | 98.2 | |||||||||||||||||||||||||||||||||||||||||
| Total Americas | 709.8 | 642.1 | 145.2 | 151.5 | 855.0 | 793.6 | |||||||||||||||||||||||||||||||||||||||||
| EMEIA | 445.4 | 426.0 | 113.7 | 113.4 | 559.1 | 539.4 | |||||||||||||||||||||||||||||||||||||||||
| Asia Pacific | 218.2 | 249.1 | 37.8 | 47.2 | 256.0 | 296.3 | |||||||||||||||||||||||||||||||||||||||||
| Total | $ | 1,373.4 | $ | 1,317.2 | $ | 296.7 | $ | 312.1 | $ | 1,670.1 | $ | 1,629.3 | |||||||||||||||||||||||||||||||||||
| Product Categories | |||||||||||||||||||||||||||||||||||||||||||||||
| Original equipment(1) | $ | 827.1 | $ | 790.1 | $ | 225.0 | $ | 245.3 | $ | 1,052.1 | $ | 1,035.4 | |||||||||||||||||||||||||||||||||||
| Aftermarket(2) | 546.3 | 527.1 | 71.7 | 66.8 | 618.0 | 593.9 | |||||||||||||||||||||||||||||||||||||||||
| Total | $ | 1,373.4 | $ | 1,317.2 | $ | 296.7 | $ | 312.1 | $ | 1,670.1 | $ | 1,629.3 | |||||||||||||||||||||||||||||||||||
| Pattern of Revenue Recognition | |||||||||||||||||||||||||||||||||||||||||||||||
| Revenue recognized at point in time(3) | $ | 1,244.4 | $ | 1,220.5 | $ | 295.5 | $ | 311.2 | $ | 1,539.9 | $ | 1,531.7 | |||||||||||||||||||||||||||||||||||
| Revenue recognized over time(4) | 129.0 | 96.7 | 1.2 | 0.9 | 130.2 | 97.6 | |||||||||||||||||||||||||||||||||||||||||
| Total | $ | 1,373.4 | $ | 1,317.2 | $ | 296.7 | $ | 312.1 | $ | 1,670.1 | $ | 1,629.3 |
(1)Revenues from sales of capital equipment within the Industrial Technologies and Services segment and sales of components to original equipment manufacturers in the Precision and Science Technologies segment.
(2)Revenues from sales of spare parts, accessories, other components and services in support of maintaining customer owned, installed base of the Company’s original equipment. Service revenue represents less than 10% of consolidated revenue.
(3)Revenues from short and long duration product and service contracts recognized at a point in time when control is transferred to the customer generally when product delivery has occurred and services have been rendered.
(4)Revenues primarily from long duration ETO product contracts, certain multi-year service contracts, and certain contracts for the delivery of a significant volume of substantially similar products recognized over time as contractual performance obligations are completed.
Performance Obligations
As of March 31, 2024, for contracts with an original duration greater than one year, the Company expects to recognize revenue in the future related to unsatisfied (or partially satisfied) performance obligations of $687.8 million in the next twelve months and $643.1 million in periods thereafter. The performance obligations that are unsatisfied (or partially satisfied) are primarily related to orders for goods or services that were placed prior to the end of the reporting period and have not been delivered to the customer, on-going work on ETO contracts where revenue is recognized over time and service contracts with an original duration greater than one year.
Contract Balances
The following table provides the contract balances as of March 31, 2024 and December 31, 2023 presented in the Condensed Consolidated Balance Sheets.
| March 31, 2024 | December 31, 2023 | ||||||||||
| Accounts receivable, net | $ | 1,245.2 | $ | 1,234.2 | |||||||
| Contract assets | 90.7 | 85.6 | |||||||||
| Contract liabilities - current | 345.4 | 331.2 | |||||||||
| Contract liabilities - noncurrent | 1.0 | 1.0 |
Note 16. Income Taxes
The following table summarizes the Company’s provision for income taxes and effective income tax provision rate for the three month periods ended March 31, 2024 and 2023.
| For the Three Month Period Ended March 31, | |||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||
| Income before income taxes | $ | 269.6 | $ | 211.0 | |||||||||||||||||||
| Provision for income taxes | $ | 54.4 | $ | 48.1 | |||||||||||||||||||
| Effective income tax provision rate | 20.2 | % | 22.8 | % |
The increase in the provision for income taxes and decrease in the effective income tax provision rate for the three month period ended March 31, 2024 when compared to the same three month period of 2023. The increase in the provision for income taxes is primarily due to an increase in the pretax book income. The decrease in the effective income tax provision rate is primarily due to the additional benefit of a windfall tax deduction during the first quarter of 2024, partially offset by an increase in the pretax book income in jurisdictions with higher effective tax rates.
Note 17. Other Operating Expense, Net
The components of “Other operating expense, net” for the three month periods ended March 31, 2024 and 2023 were as follows.
| For the Three Month Period Ended March 31, | |||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||
| Foreign currency transaction losses (gains), net | $ | (0.7) | $ | 1.0 | |||||||||||||||||||
| Restructuring charges, net(1) | 9.7 | 2.9 | |||||||||||||||||||||
| Acquisition and other transaction related expenses(2) | 15.3 | 15.2 | |||||||||||||||||||||
| Other, net | 0.9 | 1.3 | |||||||||||||||||||||
| Total other operating expense, net | $ | 25.2 | $ | 20.4 |
(1)See Note 3 “Restructuring.”
(2)Represents costs associated with successful and abandoned acquisitions, including third-party expenses and post-closure integration costs.
Note 18. Contingencies
The Company is a party to various legal proceedings, lawsuits and administrative actions, which are of an ordinary or routine nature for a company of its size and sector. The Company believes that such proceedings, lawsuits and administrative actions will not materially adversely affect its operations, financial condition, liquidity or competitive position. For further description of the Company’s contingencies, reference is made to Note 21, “Contingencies” in the notes to consolidated financial statements in the Company’s 2023 Annual Report.
Asbestos and Silica Related Litigation
The Company believes that the pending and future asbestos and silica-related lawsuits are not likely to, in the aggregate, have a material adverse effect on its consolidated financial position, results of operations or liquidity. “Accrued liabilities” and “Other liabilities” of the Condensed Consolidated Balance Sheets include a total litigation reserve of $124.7 million and $126.9 million as of March 31, 2024 and December 31, 2023, respectively, with regards to potential liability arising from the Company’s asbestos-related litigation. Asbestos related defense costs are excluded from the asbestos claims liability and are recorded separately as services are incurred. In the event of unexpected future developments, it is possible that the ultimate resolution of these matters may be material to the Company’s consolidated financial position, results of operation or liquidity.
The Company has entered into a series of agreements with certain of its or its predecessors’ legacy insurers and certain potential indemnitors to secure insurance coverage and/or reimbursement for the costs associated with the asbestos and silica-related lawsuits filed against the Company. The Company has an insurance recovery receivable for probable asbestos related recoveries of approximately $151.4 million and $157.7 million as of March 31, 2024 and December 31, 2023, respectively, which was included in “Other assets” in the Condensed Consolidated Balance Sheets. The amounts recorded by the Company for asbestos-related liabilities and insurance recoveries are based on currently available information and assumptions that the Company believes are reasonable based on an evaluation of relevant factors. The actual liabilities or insurance recoveries could be higher or lower than those recorded if actual results vary significantly from the assumptions.
Environmental Matters
The Company has been identified as a potentially responsible party (“PRP”) with respect to several sites designated for cleanup under U.S. federal “Superfund” or similar state laws that impose liability for cleanup of certain waste sites and for related natural resource damages. The Company has undiscounted accrued liabilities of $16.3 million and $16.7 million as of March 31, 2024 and December 31, 2023, respectively, on its Condensed Consolidated Balance Sheets to the extent costs are known or can be reasonably estimated for its remaining financial obligations in relation to environmental matters and does not anticipate that any of these matters will result in material additional costs beyond amounts accrued. Based upon consideration of currently available information, the Company does not anticipate any material adverse effect on its results of operations, financial condition, liquidity or competitive position as a result of compliance with federal, state, local or foreign environmental laws or regulations, or cleanup costs relating to these matters.
Note 19. Segment Results
A description of the Company’s two reportable segments, including the specific products manufactured and sold follows below.
In the Industrial Technologies and Services segment, the Company designs, manufactures, markets and services a broad range of compression and vacuum equipment as well as fluid transfer equipment, and loading systems. The Company’s compression and vacuum products are used worldwide in industrial manufacturing, transportation, chemical processing, food and beverage production, clean energy, environmental and other applications. In addition to equipment sales, the Company offers a broad portfolio of service options tailored to customer needs and complete range of aftermarket parts, air treatment equipment, controls and other accessories. The Company’s engineered loading systems and fluid transfer equipment ensure the safe handling and transfer of crude oil, liquefied natural gas, compressed natural gas, chemicals, and bulk materials.
In the Precision and Science Technologies segment, the Company designs, manufactures and markets a broad range of specialized positive displacement pumps, fluid management equipment and aftermarket parts for medical, laboratory, industrial manufacturing, water and wastewater, chemical processing, clean energy, food and beverage, agriculture and other markets. The Company’s products are used for a diverse set of applications including precision dosing of chemicals and supplements, blood dialysis, oxygen therapy, food processing, fluid transfer and dispensing, spray finishing and coating, mixing, high-pressure air and gas management and others. The Company sells primarily through a broad global network of specialized and national distributors and original equipment manufacturers who integrate the Company’s products into their devices and systems.
The Chief Operating Decision Maker (“CODM”) evaluates the performance of the Company’s reportable segments based on, among other measures, Segment Adjusted EBITDA. Management closely monitors the Segment Adjusted EBITDA of each reportable segment to evaluate past performance and actions required to improve profitability. Inter-segment sales and transfers are not significant. Administrative expenses related to the Company’s corporate offices and shared service centers in the United States and Europe, which includes transaction processing, accounting and other business support functions, are allocated to the business segments. Certain administrative expenses, including senior management compensation, treasury, internal audit, tax compliance, certain information technology, and other corporate functions, are not allocated to the business segments.
The following table provides summarized information about the Company’s operations by reportable segment and reconciles Segment Adjusted EBITDA to Income Before Income Taxes for the three month periods ended March 31, 2024 and 2023.
| For the Three Month Period Ended March 31, | |||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||
| Revenue | |||||||||||||||||||||||
| Industrial Technologies and Services | $ | 1,373.4 | $ | 1,317.2 | |||||||||||||||||||
| Precision and Science Technologies | 296.7 | 312.1 | |||||||||||||||||||||
| Total Revenue | $ | 1,670.1 | $ | 1,629.3 | |||||||||||||||||||
| Segment Adjusted EBITDA | |||||||||||||||||||||||
| Industrial Technologies and Services | $ | 411.1 | $ | 345.6 | |||||||||||||||||||
| Precision and Science Technologies | 91.4 | 94.5 | |||||||||||||||||||||
| Total Segment Adjusted EBITDA | $ | 502.5 | $ | 440.1 | |||||||||||||||||||
| Less items to reconcile Segment Adjusted EBITDA to Income Before Income Taxes: | |||||||||||||||||||||||
| Corporate expenses not allocated to segments | $ | 44.0 | $ | 40.0 | |||||||||||||||||||
| Interest expense | 36.8 | 38.9 | |||||||||||||||||||||
| Depreciation and amortization expense (a) | 116.3 | 113.1 | |||||||||||||||||||||
| Restructuring and related business transformation costs (b) | 10.7 | 4.3 | |||||||||||||||||||||
| Acquisition and other transaction related expenses and non-cash charges (c) | 15.3 | 18.0 | |||||||||||||||||||||
| Stock-based compensation | 14.1 | 12.1 | |||||||||||||||||||||
| Foreign currency transaction losses (gains), net | (0.7) | 1.0 | |||||||||||||||||||||
| Adjustments to LIFO inventories | 6.8 | 7.8 | |||||||||||||||||||||
| Cybersecurity incident costs (d) | 0.6 | — | |||||||||||||||||||||
| Interest income on cash and cash equivalents | (11.4) | (4.7) | |||||||||||||||||||||
| Other adjustments (e) | 0.4 | (1.4) | |||||||||||||||||||||
| Income Before Income Taxes | 269.6 | 211.0 | |||||||||||||||||||||
| Provision for income taxes | 54.4 | 48.1 | |||||||||||||||||||||
| Income (loss) on equity method investments | (10.7) | 0.3 | |||||||||||||||||||||
| Net Income | $ | 204.5 | $ | 163.2 |
a)Depreciation and amortization expense excludes $0.9 million and $0.9 million of depreciation of rental equipment for the three month periods ended March 31, 2024 and 2023, respectively.
b)Restructuring and related business transformation costs consist of the following.
| For the Three Month Period Ended March 31, | |||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||
| Restructuring charges | $ | 9.7 | $ | 2.9 | |||||||||||||||||||
| Facility reorganization, relocation and other costs | 1.0 | 1.4 | |||||||||||||||||||||
| Total restructuring and related business transformation costs | $ | 10.7 | $ | 4.3 |
c)Represents costs associated with successful and abandoned acquisitions, including third-party expenses, post-closure integration costs and non-cash charges and credits arising from fair value purchase accounting adjustments.
d)Represents non-recoverable costs associated with a cybersecurity event.
e)Includes (i) pension and other postemployment plan costs other than service cost and (ii) other miscellaneous adjustments.
Note 20. Earnings Per Share
The calculation of earnings per share is based on the weighted-average number of the Company’s shares outstanding for the applicable period. The calculation of diluted earnings per share reflects the effect of all potentially dilutive shares that were outstanding during the respective periods, unless the effect of doing so is antidilutive. The Company uses the treasury stock
method to calculate the dilutive effect of outstanding share-based compensation awards. The number of weighted-average shares outstanding used in the computations of basic and diluted earnings per share are as follows.
| For the Three Month Period Ended March 31, | |||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||
| Weighted-average shares outstanding - Basic | 403.5 | 405.0 | |||||||||||||||||||||
| Dilutive effect of outstanding share-based compensation awards | 4.4 | 4.2 | |||||||||||||||||||||
| Weighted-average shares outstanding - Diluted | 407.9 | 409.2 | |||||||||||||||||||||
For the three month periods ended March 31, 2024 and 2023, 0.4 million and 2.0 million, respectively, of anti-dilutive shares were not included in the computation of diluted earnings per share.
Note 21. Subsequent Event
On April 25, 2024, the Company’s board of directors authorized a $1.0 billion increase to the Company’s share repurchase program. This increase is incremental to the amount remaining on the existing $750 million authorization. These authorizations do not have any expiration date. Under the repurchase program, Ingersoll Rand may from time to time repurchase shares of the Company’s common stock in the open market at prevailing market prices (including through Rule 10b5-1 plans), in privately negotiated transactions, a combination thereof, or through other transactions. The actual timing, number, manner, and value of any shares repurchased will depend on several factors, including the market price of the Company’s stock, general market and economic conditions, the Company’s liquidity requirements, applicable legal requirements, and other business considerations.
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